Chapter 15 Investments and International Operations 

MULTIPLE CHOICE QUESTIONS

Long-term investments are usually held as an investment of cash for use in current operations.

• 1. True
  2. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

Land used in the company's operations is reported as a long-term investment.

• 1. True
  2. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

Short-term investments are also called temporary investments or marketable securities.

• 1. True
  2. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

1. Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Understand

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

1. Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

1. Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business, and are readily convertible to cash.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

1. Long-term investments include investments in land or other assets not used in a company's operations.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; FN Measurement

Debt securities are recorded at cost when purchased.

• 1. True
  2. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

1. Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

Any cash dividends received from equity securities are recorded as Dividend Expense.

• 1. True
  2. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

1. When an investment in an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

1. A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

True

• 1. False

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

1. An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

True

• 1. False

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

1. A company holds $40,000 of 7% bonds as a held-to-maturity security. The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

True

• 1. False

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Decision Making; FN Measurement

A controlling investor is called the parent, and the investee company is called the subsidiary.

• 1. True
  2. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

1. When an investor company owns more than 25% of the voting stock of an investee company, it has a controlling influence.

True

• 1. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Decision Making

1. The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

True

• 1. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. When the cost of a short-term held-to-maturity debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

True

• 1. False

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Investments in trading securities are accounted for using the equity method with consolidation.

• 1. True
  2. False

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

True

• 1. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Consolidated financial statements show the financial position, results of operations, and cash flows of all entities under the parent's control, including all subsidiaries.

True

• 1. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. When consolidated financial statements are prepared, the parent company uses the equity method and reports the investment accounts for the subsidiaries on the balance sheet.

True

• 1. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Equity securities giving an investor significant influence over an investee are always considered short-term investments.

True

• 1. False

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars can be purchased for $1.48 U.S. dollars.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

Multinational corporations can be U.S. companies with operations in other countries.

• 1. True
  2. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Global

1. Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Global

The price of one currency stated in terms of another currency is called a foreign exchange rate.

• 1. True
  2. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Global

Return on total assets can be separated into the profit margin ratio and total asset turnover.

• 1. True
  2. False

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

Profit margin is net sales divided by net income.

• 1. True
  2. False

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

Profit margin reflects the percent of net income in each dollar of net sales.

• 1. True
  2. False

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

All companies desire a low return on total assets.

• 1. True
  2. False

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its profit margin equals 7.5%.

True

• 1. False

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its total asset turnover equals 4.7%.

True

• 1. False

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

A company should report its portfolio of trading securities at its fair value.

• 1. True
  2. False

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Trading securities are securities that are purchased by trading securities with other companies rather than by paying cash.

True

• 1. False

Learning Objective: 15-P1 Account for trading securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Decision Making; BB Industry

Trading securities are always reported as current assets.

• 1. True
  2. False

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Unrealized gains and losses on trading securities are reported on the income statement.

• 1. True
  2. False

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Held-to-maturity securities are equity securities a company intends and is able to hold until maturity.

True

• 1. False

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

Investments in held-to-maturity debt securities are always current assets.

• 1. True
  2. False

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

True

• 1. False

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Decision Making; BB Industry

1. If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities.; 15-P4 Account for equity securities with significant influence. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Long-term investments in debt securities not classified as trading or held-to-maturity securities are classified as available-for-sale securities.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

1. Management's intent determines whether an available-for-sale security is classified as long-term or short-term.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Unrealized Loss—Equity and Unrealized Gain—Equity are permanent equity accounts.

• 1. True
  2. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Both U.S. GAAP and IFRS permit companies to use fair value in reporting available-for-sale and held-to-maturity securities.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Security prices are sometimes listed in fractions. For example, a debt security with a price of 22¾ is the same as $22.25.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Available-for-sale securities are actively managed like trading securities because the company intends to trade them for profit in the short term.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Long-term investments in available-for-sale securities are reported at fair value on the balance sheet.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

1. On May 1, Jorge Co. purchases 2,000 shares of Radiotech stock for $25,000. This investment is considered to be an available-for-sale investment. This is the company's first and only investment in available-for-sale securities. On July 31 (Jorge's year-end), the stock had a market value of

$28,000. Jorge should record a credit to Unrealized Gain—Equity for $3,000.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On May 15, Tumbleweed, Inc. purchased 10,000 shares of Dansell Corp. for $80,000. The securities are considered available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On September 30, the stock had a market value of

$85,000. The $5,000 difference must be reported on Tumbleweed's income statement as a $5,000 gain.

True

• 1. False

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. An investor presumed to have significant influence owns at least 20% but not more than 50% of another company's voting stock.

True

• 1. False

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

1. The cost method of accounting is used for long-term investments in equity securities with significant influence.

True

• 1. False

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. When using the equity method for investments in equity securities, the investor records the receipt of cash dividends as revenue.

True

• 1. False

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Hamasaki Company owns 30% of CDW Corp. stock. Hamasaki received $6,500 in cash dividends from its investment in CDW. The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

True

• 1. False

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. When using the equity method, receipt of cash dividends increases the carrying (book) value of an investment in equity securities.

True

• 1. False

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. To prepare consolidated financial statements when a U.S. parent company has an international subsidiary, the international subsidiary's financial statements must be translated into U.S. dollars.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Global

1. If a U.S. company's credit sale to an international customer allows payment to be made in a foreign currency, the sale transaction is recorded using the exchange rate on the date of sale.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. If a U.S. Company's credit sale to an international customer allows payment to be made in a foreign currency, the same exchange rate must be used for the date of sale and the cash payment date.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound. At the year-end balance sheet date, the exchange rate increased to $1.69. Kim must record a gain of $600.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. Maroon Company sold supplies in the amount of €15,000 (euros) to a French company when the exchange rate was $1.15 per euro. At the time of payment, the exchange rate decreased to $1.12. Maroon must record a loss of $450.

True

• 1. False

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

Long-term investments:

• 1. Include only equity securities.
  2. Are expected to be converted into cash within one year.
  3. Must be readily convertible to cash.
  4. Can include funds designated for a special purpose, or investments in land not used in the company's operations.

Are current assets.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Short-term investments:

• 1. Include funds earmarked for a special purpose such as bond sinking funds.
  2. Include bonds not intended to be converted into cash.
  3. Include stocks not intended to be converted into cash.
  4. Are securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash.

Include sinking funds not intended to be converted into cash.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Long-term investments are reported in the:

• 1. Equity section of the balance sheet.
  2. Plant assets section of the balance sheet.
  3. Non-current section of the balance sheet called long-term investments.
  4. Current asset section of the balance sheet.
  5. Intangible asset section of the balance sheet.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Long-term investments include:

• 1. Investments in marketable bonds that are intended to be converted into cash in the short-term.
  2. Investments intended to be converted to cash within one year.
  3. Investments in marketable stocks that are intended to be converted into cash in the short-term.
  4. Investments in bonds and stocks that are not readily convertible to cash or not intended to be converted to cash in the short term.

Only investments readily convertible to cash.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Strickland Corporation has invested in 10% of the outstanding stock of Nez Corporation. Strickland intends to actively manage this investment for profit. This investment is classified as:

a held-to-maturity security.

• 1. a significant influence security.
  2. a trading security.
  3. a controlling influence security.
  4. an available-for-sale security.

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

All of the following statements regarding equity securities are true except:

• 1. Equity securities should be recorded at cost when acquired.
  2. Equity securities are valued at fair value if classified as significant influence securities.
  3. Equity securities are valued at fair value if classified as trading securities.
  4. Equity securities classified as available-for-sale record the dividend revenue when received.
  5. Equity securities are valued at fair value if classified as available-for-sale securities.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

All of the following are true about debt securities except:

• 1. They can have a cost higher than the maturity value.
  2. They can be short-term investments.
  3. They can be long-term investments.
  4. They can have a cost lower than the maturity value.
  5. They reflect an owner relationship.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

At acquisition, debt securities are:

• 1. Recorded at cost.
  2. Recorded at the amount of interest that will be received over the life of the security.
  3. Not recorded, because no interest is due yet.
  4. Recorded at cost plus the amount of dividend income to be received.
  5. Recorded at their cost, plus total interest that will be received over the life of the security.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

At the end of the accounting period, the owners of debt securities:

• 1. Must record a gain or loss on the interest income earned.
  2. Must report the dividend income accrued on the debt securities.
  3. Must record any interest earned on the debt securities during the period.
  4. Must retire the debt.
  5. Must record a gain or loss on the dividend income earned.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. A company has an investment in 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

A) $9,000. B) $1,500. C) $2,250. D) $750. E) $4,500.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has 25,000 shares of stock outstanding. WRJ paid $4 per share in cash dividends to its stockholders. The entry to record the receipt of these dividends is:

Debt Long-Term Investment, $8,000; credit Cash, $8,000.

• 1. Debit Unrealized Gain-Equity, $8,000; credit Cash, $8,000.
  2. Debit Cash, $8,000; credit Long-Term Investments, $8,000.
  3. Debit Cash, $8,000; credit Unrealized Gain-Equity, $8,000.
  4. Debit Cash, $8,000; credit Dividend Revenue, $8,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:

A) $1,000. B) $2,500. C) $500. D) $1,250. E) $1,500.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

A) $40,000. B) $40,525. C) $43,200. D) $37,800. E) $38,325.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments.; 15-P2 Account for held-to-maturity securities.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value as a long-term investment. The company intends to hold the bonds to maturity. The correct entry to record the purchase of the bond investment is:

Debit Long-Term Investments—HTM $38,325; credit Cash $38,325.

• 1. Debit Long-Term Investments—HTM $37,800; credit Cash $37,800.
  2. Debit Long-Term Investments—HTM $37,800; debit Loss on Investment $525; credit Cash

$38,325.

• 1. Debit Long-Term Investments—HTM $37,800; debit Investment Expense $525; credit Cash

$38,325.

Debit Cash $40,000; credit Long-Term Investments—HTM $40,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments.; 15-P2 Account for held-to-maturity securities.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Kendall Corp. purchased at par value $75,000 of Shrem Company's 8% bonds that mature in

three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry:

debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000.

• 1. debit Cash, $75,000; credit Long-Term Investments—Trading, $75,000.
  2. debit Long-Term Investments—HTM, $75,000; credit Cash, $75,000.
  3. debit Cash, $75,000; credit Long-Term Investments—HTM, $75,000.
  4. debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments.; 15-P2 Account for held-to-maturity securities.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Kendall Corp. purchased at par value $160,000 of Barker Company's 7% bonds that mature in 10 months. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. The journal entry to record Kendall's purchase of the bonds is:

debit Short-Term Investments—HTM $160,000; credit Cash, $160,000.

• 1. debit Long-Term Investments-HTM $160,000; credit Cash $160,000.
  2. debit Cash, $160,000; credit Short-Term Investments—HTM $160,000.
  3. debit Cash, $169,333; credit, Short-Term Investments—HTM $169,333.
  4. debit Cash, $160,000; credit Long-Term Investments-HTM $160,000.

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Barnes Company purchased $50,000 of 8% bonds at par. The bonds mature in six years and are a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

debit Cash, $2,000; credit Interest Revenue, $2,000.

• 1. debit Cash, $4,000; credit Long-Term Investments—HTM, $4,000.
  2. debit Unrealized Gain-Equity, $2,000; credit Cash, $2,000.
  3. debit Cash, $4,000; credit Unrealized Gain-Equity, $4,000.
  4. debt Cash, $2,000; credit Long-Term Investments—HTM, $2000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments.; 15-P2 Account for held-to-maturity securities.

Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Accounting for long-term investments in equity securities with controlling influence uses the:

• 1. Controlling method.
  2. Consolidated method.
  3. Equity method with consolidation.
  4. Investment method.
  5. Investor method.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The controlling investor is called the:

• 1. Senior entity.
  2. Parent.
  3. Owner.
  4. Investee.
  5. Subsidiary.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

The investee company in a long term investment with controlling interest is called the:

• 1. Subsidiary.
  2. Parent.
  3. Senior entity.
  4. Owner.
  5. Creditor.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

A controlling influence over the investee is based on the investor owning voting stock exceeding: A) 20%. B) 40%. C) 50%. D) 10%. E) 30%.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

Long-term investments cannot include:

• 1. Securities with maturity dates within one operating cycle.
  2. Available-for-sale equity securities.
  3. Held-to-maturity debt securities.
  4. Equity securities giving an investor significant influence over an investee.
  5. Available-for-sale debt securities.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: BB Decision Making; BB Industry

Consolidated financial statements:

• 1. Show the results of operations, cash flows, and the financial position of all entities under a parent's control, including all subsidiaries.

Include the investments in the subsidiaries on the balance sheet.

• 1. Show the results of operations, cash flows, and the financial position of the parent only.
  2. Do not include a balance sheet.
  3. Show the results of operations, cash flows, and the financial position of the subsidiary only.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

Comprehensive income includes all except:

• 1. Gains and losses reported in the income statement.
  2. All changes in equity for a period except those due to investments and distributions to owners.

Unrealized gains and losses on long-term available-for-sale securities.

• 1. Dividends paid to shareholders.
  2. Revenues and expenses reported in the income statement.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Short-term investments in held-to-maturity debt securities are accounted for using the:

• 1. Fair value method with fair value adjustment to equity.
  2. Cost method without amortization.
  3. Cost method with amortization.
  4. Equity method.
  5. Fair value method with fair value adjustment to income.

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Long-term investments in held-to-maturity debt securities are accounted for using the:

• 1. Cost method without amortization.
  2. Fair value method with fair value adjustment to income.
  3. Equity method.
  4. Fair value method with fair value adjustment to equity.
  5. Cost method with amortization.

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The price of one currency stated in terms of another currency is called a(n):

• 1. Currency rate.
  2. Foreign exchange rate.
  3. International conversion rate.
  4. Currency transaction.
  5. Historical exchange rate.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Global

All of the following statements relating to accounting for international operations are true except:

• 1. The balance in the Foreign Exchange Gain (or Loss) account is reported on the income statement.
  2. Foreign exchange gains or losses can occur when accounting for international purchases transactions.
  3. Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss) account.
  4. Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet.
  5. Foreign exchange gains or losses can occur when accounting for international sales transactions.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; FN Reporting; BB Global

Foreign exchange rates fluctuate due to changes in all but which of the following?

• 1. Expectations of future events.
  2. Supply and demand for currencies.
  3. Political conditions.
  4. Economic conditions.
  5. Whether the companies prepare financial statements under U.S. GAAP or IFRS.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

The currency in which a company presents its financial statements is known as the:

• 1. Historical cost currency.
  2. Multinational currency.
  3. Specific currency.
  4. Reporting currency.
  5. Price-level-adjusted currency.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Global

1. If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3 Canadian dollars will buy ________ worth of U.S. dollars.

A) $2.48 B) $0.2759 C) $0.82777 D) $1.00 E) $1.82777

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound. At the year-end balance sheet date, the exchange rate increased to $2.76. If the liability is still unpaid at that time, Kreighton must record a:

A) gain of $138,000. B) loss of $138,000.

1. neither a gain nor loss.
2. loss of $39,500.
3. gain of $39,500.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. Marshall Company sold supplies in the amount of €25,000 (euros) to a French company when the exchange rate was $1.21 per euro. At the time of payment, the exchange rate decreased to $0.82. Marshall must record a:

gain of $20,500.

• 1. neither a gain nor loss.
  2. loss of $20,500.
  3. gain of $9,750.
  4. loss of $9,750.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

Select the correct statement from the following:

• 1. Total asset turnover reflects the percent of net income in each dollar of net sales.
  2. Return on total assets analysis is beneficial in evaluating a company but is not useful for competitor analysis.

High returns on total assets are desirable.

• 1. Profit margin reflects a company's ability to produce net sales from total assets.
  2. Return on total assets can be separated into gross margin ratio and price-earnings ratio.

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. Cloverton Corporation had net income of $30,000, net sales of $1,000,000, and average total assets of $500,000. Its return on total assets is:

A) 200% B) 1.5% C) 6% D) 3% E) 17%

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. Canberry Corporation had net income of $80,000, beginning total assets of $640,000 and ending total assets of $580,000. Its return on total assets is:

A) 13.8% B) 12.5% C) 13.1% D) 725% E) 800%

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company has net income of $250,000, net sales of $2,000,000, and average total assets of

$1,500,000. Its return on total assets equals:

A) 12.5%. B) 75.0%. C) 600.0%. D) 16.7%. E) 13.3%.

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company had net income of $2,660,000, net sales of $25,000,000, and average total assets of

$8,000,000. Its return on total assets equals:

A) 10.64%. B) 3.01%. C) 32.00%. D) 33.25%. E) 300.75%.

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company had net income of $43,000, net sales of $380,500, and average total assets of $220,000. Its profit margin and total asset turnover were, respectively:

A) 11.3%; 19.5.

B) 11.3%; 1.73.

C) 1.7%; 11.3.

D) 19.5%; 11.3.

E) 1.7%; 19.5.

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return on total assets was:

A) 13.61% B) 19.32% C) 8.66% D) 12.34% E) 5.71%

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

1. A company had net income of $40,000, net sales of $300,000, and average total assets of $200,000. Its profit margin and total asset turnover were respectively:

A) 13.3%; 1.5.

B) 13.3%; 0.2.

C) 1.5%; 0.2.

D) 2.0%; 1.5.

E) 1.5%; 13.3.

Learning Objective: 15-A1 Compute and analyze the components of return on total assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

Investments can be classified as all but which of the following:

• 1. Held-to-maturity debt securities.
  2. Available-for-sale equity securities.
  3. Available-for-sale debt securities.
  4. Trading securities.
  5. Intangible investments.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

Available-for-sale securities.

• 1. Held-to-maturity securities.
  2. Trading securities.
  3. Liquid securities.
  4. Realizable securities.

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Investments in trading securities:

• 1. Are reported as current assets.
  2. Are long-term investments.
  3. Are reported at their cost, no matter what their market value.
  4. Include only debt securities.
  5. Include only equity securities.

Learning Objective: 15-P1 Account for trading securities. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n):

Unrealized loss.

• 1. Market loss.
  2. Contingent loss.
  3. Realizable loss.
  4. Capitalized loss.

Learning Objective: 15-P1 Account for trading securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Held-to-maturity securities are:

• 1. Always classified as Short-Term Investments.
  2. Equity securities where significant influence involved.
  3. Debt securities that a company intends and is able to hold to maturity.
  4. Always classified as Long-Term Investments.
  5. Equity securities that a company intends and is able to hold to maturity.

Learning Objective: 15-P2 Account for held-to-maturity securities. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Available-for-sale debt securities are:

• 1. Intended to be held to maturity.
  2. Always classified as Long-Term Investments.
  3. Reported at fair value on the balance sheet.
  4. Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.

Recorded at cost and remain at cost over the life of the investment.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. Carpark Services began operations in 20X1 and maintains long-term investments in

available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is:

• 1. Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Loss – Equity $9,000.
  2. Debit Unrealized Gain– Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $9,000.
  3. Debit Fair Value Adjustment – Available-for-Sale (LT) $9,000; Credit Unrealized Gain – Equity $9,000.
  4. Debit Unrealized Loss – Equity $9,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $9,000.
  5. Debit Unrealized Loss – Income $9,000; Credit Fair Value Adjustment – Available-for-Sale (ST) $9,000.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Carpark Services began operations in 20X1 and maintains long-term investments in

available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:

• 1. Debit Fair Value Adjustment – Available-for-Sale (LT) $19,000; Credit Unrealized Loss – Equity $9,000; Credit Unrealized Gain – Equity, $10,000.
  2. Debit Fair Value Adjustment – Available-for-Sale (LT) $10,000; Credit Unrealized Loss – Equity $10,000.
  3. Debit Fair Value Adjustment – Available-for-Sale (LT) $10,000; Credit Unrealized Gain – Equity, $10,000.
  4. Debit Fair Value Adjustment – Available-for-Sale (LT) $19,000; Credit Unrealized Gain – Equity $19,000.
  5. Debit Unrealized Gain – Equity $10,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $10,000.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Trading securities are:

• 1. Intended to be held to maturity.
  2. Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.

Recorded at cost and remain at cost over the life of the investment.

• 1. Always classified as Long-Term Investments.
  2. Reported at fair value on the balance sheet.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

All of the following are true for Available-for-sale equity securities except:

• 1. Are reported at market value on the balance sheet.
  2. Are actively managed like Trading Securities.
  3. May be classified as either short-term or long-term securities.
  4. May earn dividends that are reported in that year's income statement.
  5. Are recorded at cost when acquired.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. J.P. Industries purchased 2,000 shares of Yang's common stock for $143,000 as a long-term investment. The investment is classified as available-for-sale securities. The par value of the stock was $1 per share. J.P. paid $375 in commissions on the transaction. J.P.'s entry to record the purchase transaction would include a:

Credit to Common Stock for $143,375.

• 1. Debit to Long-Term Investments-AFS for $143,375.
  2. Debit to Long-Term Investments-AFS for $143,000.
  3. Credit to Common Stock for $2,000.
  4. Credit to Common Stock for $143,000.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Lessington's entry to record the purchase transaction would include a:

Credit to Common Stock for $4,000.

• 1. Credit to Common Stock for $150,000.
  2. Debit to Long-Term Investments-AFS for $4,000.
  3. Credit Gain on Long-Term Investment $146,000.
  4. Debit to Long-Term Investments-AFS for $150,000.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Six months ago, a company purchased an investment in stock for $70,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. The current fair value of the stock is $68,500. The company should record a:

Credit to Unrealized Gain—Equity for $1,500.

• 1. No entry is required.
  2. Credit to Investment Revenue for $1,500.
  3. Debit to Unrealized Loss—Equity for $1,500.
  4. Debit to Investment Revenue for $1,500.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On October 31, which is Potter's year-end, the stock had a fair value of

$20,000. Potter should record a:

Debit to Unrealized Loss-Equity for $4,000.

• 1. Credit to Investment Revenue for $4,000.
  2. Credit to Market Adjustment—Available-for-Sale for $4,000.
  3. Debit to Unrealized Gain-Equity for $4,000.
  4. Credit to Unrealized Gain-Equity for $4,000.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On March 15, Alan Company purchased 10,000 shares of Cameo Corp. stock for $35,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On June 30, the stock had a fair value of $34,000. Alan should do which of the following:

Record a debit to the Fair Value Adjustment-AFS account.

• 1. Report an increase in the asset section of the balance sheet.
  2. Report a decrease in the Gain on Sale of Investment income statement account.
  3. Record an increase to the Unrealized Gain—Income account.
  4. Record an increase to the Unrealized Loss—Equity account.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Reporting

1. If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?

Effective method.

• 1. Fair value method.
  2. Cost with amortization method.
  3. Historical cost method.
  4. Equity method.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

1. MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

Debit to Short-Term Investment-AFS for $232,000.

• 1. Debit to Long-Term Investments for $92,800.
  2. Debit to Long-Term Investments for $232,000.
  3. Debit to Long-Term Investments-HTM for $232,000.
  4. Credit to Long-Term Investments for $92,800.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Segmental Manufacturing owns 35% of Glesson Corp. stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental's entry to record the dividend transaction would include a:

Credit to Investment Revenue for $47,000.

• 1. Credit to Long-Term Investments for $16,450.
  2. Credit to Cash for $16,450.
  3. Debit to Long-Term Investments for $16,450.
  4. Debit to Cash for $47,000.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

Credit to Long-Term Investments for $38,800.

• 1. Debit to Dividends for $38,800.
  2. Credit to Cash for $97,000.
  3. Debit to Long-Term investments for $97,000.
  4. Debit to Dividends for $97,000.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. McVeigh Corp. owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record this transaction should include a:

Credit to Cash for $41,200.

• 1. Credit to Long-Term Investments for $103,000.
  2. Debit to Dividends for $103,000.
  3. Credit to Long-Term Investments for $41,200.
  4. Debit to Dividend Revenue for $41,200.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:

Credit to Dividend Revenue for $25,000.

• 1. Credit to Long-Term investments for $12,750.
  2. Credit to Long-Term Investments for $25,000.
  3. Debit to Dividend Revenue for $12,750.
  4. Debit to Interest Revenue for $12,750.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

A) $124,000. B) $80,800. C) $95,200. D) $119,200. E) $100,000.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay Corporation reported net income of $150,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:

A) $125,000. B) $197,000. C) $173,000. D) $77,000. E) $370,000.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash dividends from Kuster Corporation. The entry to record receipt of these dividends is:

Debit Cash, $9,000; credit Interest Revenue, $9,000.

• 1. Debit Cash, $9,000; credit Dividend Revenue, $9,000.
  2. Debt Long-Term Investment, $9,000; credit Cash, $9000.
  3. Debit Cash, $9,000; credit Long-Term Investments, $9,000.
  4. Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. The January 12, Year 3, entry to record Barber's sale of 3,000 shares of Convell Company stock, which represents 60% of Barber's total investment, for $39,000 cash should be:
   1. Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term Investments $60,500.
   2. Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term Investments

$47,280.

• 1. Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term Investments

$47,880.

• 1. Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term Investments $30,250.
  2. Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term Investments $36,300.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. What is the book value of Barber's investment in Convell at the end of Year 2?

A) $52,000. B) $79,800. C) $88,300. D) $87,300. E) $60,500.

Learning Objective: 15-P4 Account for equity securities with significant influence. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. A U.S. company makes a sale to a foreign customer receivable in 30 days in the customer's currency. The sale would be recorded by the U.S. company on the date:

Of sale using the current dollar value.

• 1. Of sale using the foreign currency value.
  2. Of sale using a 30-day average U.S. dollar value.
  3. When payment is received.
  4. Of sale using a projected estimate of the U.S. dollar value at payment date.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. When a U.S. company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency, the foreign exchange rate used to record the sale is the exchange rate:

Thirty days from the date of sale.

• 1. On the date of the sale.
  2. At the end of the buyer's fiscal year.
  3. At the end of the seller's fiscal year.
  4. On the date final payment is made.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Remember

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. On June 18, Wyman Company (a U.S. Company) sold merchandise to the Nielsen Company of Denmark for €60,000 (Euros), with a payment due in 60 days. If the exchange rate was $1.35 per euro on the date of sale and $1.14 per euro on the date of payment, Wyman Company should recognize a foreign exchange gain or loss in the amount of:

A) $12,600 loss. B) $60,000 gain. C) $68,400 loss. D) $12,600 gain. E) $60,000 loss.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 per yen on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00843. Kagome paid in full on January 12, when the exchange rate was $0.00861. On December 31, Higgins should prepare the following journal entry:

Debit Foreign Exchange Loss $90; Accounts Receivable-Kagome $90.

• 1. Debit Accounts Receivable-Kagome $90; credit Foreign Exchange Gain $90.
  2. Debit Foreign Exchange Loss $90; credit Sales $90.
  3. No journal entry is required until the amount is collected.
  4. Debit Sales $90; credit Foreign Exchange Gain $90.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00843. Kagome paid in full on January 12, when the exchange rate was $0.00861. On January 12, Higgins should prepare the following journal entry:
   1. Debit Cash $12,645; debit Foreign Exchange Loss $90; credit Accounts Receivable-Kagome

$12,915.

• 1. Debit Cash $12,915; credit Accounts Receivable-Kagome $12,645; credit Foreign Exchange Gain $270.
  2. Debit Cash $12,915; credit Accounts Receivable-Kagome $12,555; credit Foreign Exchange Gain $360.
  3. Debit Cash $12,555; debit Foreign Exchange Loss $360; credit Accounts Receivable-Kagome

$12,915.

• 1. Debit Cash $12,915; credit Accounts Receivable-Kagome $12,645; credit Foreign Exchange Gain $90.

Learning Objective: 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. All of the following statements regarding accounting for noninfluential securities under U.S. GAAP and IFRS are true except:
   1. Trading securities are accounted for using fair values with unrealized gains and losses reported in other comprehensive income.

Both systems examine held-to-maturity securities for impairment.

• 1. Held-to-maturity securities are accounted for using amortized cost.
  2. Available-for-sale securities are accounted for using fair values with unrealized gains and losses reported in other comprehensive income.
  3. Trading securities are accounted for using fair values with unrealized gains and losses reported in net income.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Understand

AACSB: Analytical Thinking AICPA: FN Measurement; BB Global

1. All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:
   1. Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account).

Under the consolidation method, investee and investor revenues and expenses are combined.

• 1. Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income.
  2. U.S. GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.
  3. Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence.; 15-C3 Appendix 15A-Explain foreign exchange rates and record transactions listed in a foreign currency.

Bloom's: Understand AACSB: Analytical Thinking

AICPA: FN Measurement; BB Global

1. All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:
   1. Unrealized gains and losses are recorded in a temporary account that is closed to Income Summary at the end of the period.

The entire portfolio of trading securities is reported at is fair value.

• 1. An unrealized gain or loss is recorded with an adjusting entry when the securities are sold.
  2. An unrealized gain or loss from a change in fair value is reported on the income statement.
  3. An unrealized gain or loss is recorded with an adjusting entry at the end of each period.

Learning Objective: 15-P1 Account for trading securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:

An unrealized gain or loss from a change in fair value is reported on the income statement.

• 1. A realized gain or loss is recorded when the securities are sold and reported on the income statement.
  2. Any prior period fair value adjustment to the portfolio is not used to compute the gain or loss from sale of individual transactions.
  3. When the period-end fair value adjustment for the portfolio of trading securities is computed, it includes the cost and fair value of any securities sold.

The entire portfolio of trading securities is reported at fair value.

Learning Objective: 15-P1 Account for trading securities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

All of the following statements regarding other comprehensive income are true except:

• 1. Other comprehensive income includes pension adjustments.
  2. Other comprehensive income includes unrealized gains and losses on available-for-sale securities.

Other comprehensive income is not considered when calculating comprehensive income.

• 1. Other comprehensive income includes foreign currency adjustments.
  2. Accumulated other comprehensive income is defined as the cumulative impact of other comprehensive income.

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds at par value on September 1. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:

The securities will have a maturity value of $300,000.

• 1. The debt securities should be recorded at cost, $300,000.
  2. Interest Revenue should be credited when an interest payment is received.
  3. The semiannual interest payment amount is $24,000.
  4. The semiannual interest payment amount is $12,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include:

A debit to Short-Term Investments-Trading $300,000.

• 1. A debit to Long-Term Investments-HTM $300,000.
  2. A debit to Cash $300,000.
  3. A debit to Short-Term Investments-AFS $300,000.
  4. A debit to Long-Term Investments-AFS $300,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Landmark buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1. The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

Debit Interest Receivable $12,000, credit Interest Revenue $12,000.

• 1. Debit Interest Receivable $8,000, credit Interest Revenue $8,000.
  2. Debit Cash $8,000, credit Interest Revenue $8,000.
  3. Debit Interest Revenue $8,000, credit Interest Receivable $8,000.
  4. Debit Cash $12,000, credit Interest Revenue $12,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:

Debit Cash $300,000; credit Long-Term Investments-HTM $300,000.

• 1. Debit Long-Term Investments-HTM $300,000; credit Cash $300,000.
  2. Debit Cash $300,000; credit Interest Receivable $300,000.
  3. Debit Cash $300,000; credit Bonds Payable $300,000.
  4. Debit Cash $300,000; credit Interest Revenue $300,000.

Learning Objective: 15-C1 Distinguish between debt and equity securities and between short-term and long-term investments. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as long-term available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel received the dividend on April 15 and ultimately sells half of the Marcelo stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the purchase on February 15 is:

Debit Long-Term Investments-HTM $199,710; credit Cash $199,710.

• 1. Debit Long-Term Investments-Trading $200,110; credit Cash $200,110.
  2. Debit Long-Term Investments-Trading $199,710; credit Cash $199,710.
  3. Debit Long-Term Investments-AFS $199,710; credit Cash $199,710.
  4. Debit Long-Term Investments-AFS $200,110; credit Cash $200,110.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the dividend on April 15 is:

Debit Cash $8,050; credit Interest Revenue $8,050.

• 1. Debit Cash $7,350; credit Interest Revenue $7,350.
  2. Debit Cash $8,050; credit Gain on Sale of Investments $8,050.
  3. Debit Cash $8,050; credit Dividend Revenue $8,050.
  4. Debit Cash $7,350; credit Dividend Revenue $7,350.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The balance in the investment account on April 16 is:

A) $191,810. B) $191,660. C) $199,710. D) $200,110. E) $192,060.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the sale of the 3,500 shares of stock on November 17 is:
   1. Debit Cash $102,550; credit Long-Term Investments-AFS $100,055; credit Gain on Sale of Long-Term Investments $2,495.
   2. Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; credit Gain on Sale of Long-Term Investments $2,645.
   3. Debit Cash $102,300; credit Long-Term Investments-AFS $100,055; credit Gain on Sale of Long-Term Investments $2,245.
   4. Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; debit Gain on Sale of Long-Term Investments $2,645.
   5. Debit Cash $102,300; credit Long-Term Investments-AFS $99,855; credit Gain on Sale of Long-Term Investments $2,445.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The fair value of the remaining shares is $29.50 per share. The impact on Jewel's net income as a result of its investment in Marcelo Corp. was a(n):

Increase to income of $10,295.

• 1. Increase to income of $8,050.
  2. Decrease to income of $5,440.
  3. Decrease to income of $3,195.
  4. Increase to income of $2,245.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The fair value of the remaining shares is $29.50 per share. The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

Unrealized Gain –Equity; $10,295.

• 1. Unrealized Gain – Equity; $6,390.
  2. Realized Gain –Equity; $8,050.
  3. Unrealized Gain –Equity; $3,195.
  4. Unrealized Loss –Equity; $2,245.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The fair value of the remaining 3,500 shares is $29.50 per share. The amount that Jewel Company should report in the asset section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

A) $103,250. B) $2,245. C) $5,440. D) $3,195. E) $200,110.

Learning Objective: 15-P3 Account for available-for-sale securities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. Financial statements that show the financial position, results of operations, and cash flows of all entities under the parent company's control, including all subsidiaries are known as:

Consolidated financial statements

• 1. Statement of owner's equity
  2. Equity financial statements
  3. Investor financial statements
  4. Combined financial statements

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

1. The two business entities involved in an investment in securities with controlling influence, for which consolidated financial statements are prepared, are known as:

Parent and Subsidiary

• 1. Parent and Investor
  2. Both are referred to as partners.
  3. Subsidiary and Investee
  4. Consolidator and Parent

Learning Objective: 15-C2 Describe how to report equity securities with controlling influence. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

SHORT ANSWER QUESTIONS

1. Match the following terms with the appropriate definitions.
2. Equity method
3. Available-for-sale securities
4. Subsidiary
5. Long-term investments
6. Parent company
7. Return on total assets
8. Consolidated financial statements
9. Held-to-maturity securities
10. Trading securities
11. Unrealized gain (loss)

________ (1) Investments in equity and debt securities that are not readily convertible to cash or are not intended to be converted to cash in the short term.

________ (2) A corporation controlled by another company when the controlling company owns more than 50% of the investee's voting stock.

(3) Change in market value that is not yet realized through an actual sale.

________ (4) Financial statements that show the financial position, results of operations, and cash flows of all entities under the parent's control, including those of any subsidiaries.

________ (5) A company that owns a more than 50% controlling interest in a subsidiary.

(6) Debt and equity securities not classified as trading or held-to-maturity.

________ (7) Debt securities that a company intends and is able to hold until maturity.

(8) Debt and equity securities that a company intends to actively manage and trade for profit.

(9) A measure of operating efficiency, computed as net income divided by average total assets.

________ (10)An accounting method for long-term investments in equity when the investor has significant influence over the investee.

Learning Objective: 15-A1 15-C1 15-C2 15-P1 15-P2 15-P3 15-P4

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Decision Making

ESSAY QUESTIONS

Explain the difference between short-term and long-term investments. Cite examples of each.

Learning Objective: 15-C1 Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Decision Making

Discuss the reasons companies make investments.

Learning Objective: 15-C1 Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Decision Making

1. Identify the classifications for non-influential investments in securities.What are the accounting basics for non-influential investments in securities, including acquisition, dividends earned, and disposition?

Learning Objective: 15-C1 Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. What are the accounting basics for debt securities, including recording their acquisition, interest earned, and their disposal?

Learning Objective: 15-C1 Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

What is comprehensive income and how is it usually reported in the financial statements?

Learning Objective: 15-C2

Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Learning Objective: 15-C2

Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Reporting

1. Define the foreign exchange rate between two currencies. Explain its effect on business transactions conducted in a foreign currency.

Learning Objective: 15-C3

Bloom's: Understand AACSB: Analytic

AICPA: BB: Global; FN: Measurement

1. Define the return on total assets and explain how it is used to measure a company's financial performance.

Learning Objective: 15-A1

Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

Explain how to record the sale of trading securities.

Learning Objective: 15-P1

Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Explain how to account for held-to-maturity debt securities at and after acquisition and how they are reported in the financial statements.

Learning Objective: 15-P2 Bloom's: Understand

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Explain how to account for available-for-sale debt and equity securities at and after acquisition and how they are reported in financial statements.

Learning Objective: 15-P3 Bloom's: Understand

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Explain how equity securities having significant influence are accounted for and reported in the financial statements. Include a discussion of the criterion for these securities in terms of an investee's voting stock.

Learning Objective: 15-P4

Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.

Learning Objective: 15-C3

Bloom's: Understand AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On April 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year bonds with a par value of $150,000; interest is paid semiannually each April 1 and October 1. The company intends to hold these bonds until they mature. Prepare the journal entries to record the bond purchase, the receipt of the first semiannual interest payment on October 1 of the current year, and the accrual of interest for the year-end December 31.

Learning Objective: 15-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1. The company intends to hold these bonds until they mature. Prepare the journal entry to record the bond purchase.

Learning Objective: 15-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1. The company intends to hold these bonds until they mature. Prepare the journal entry to record the receipt of the first semiannual interest payment on November 1.

Learning Objective: 15-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1. The company intends to hold these bonds until they mature. Prepare the journal entry for the accrual of interest for the year-end December 31.

Learning Objective: 15-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. A company paid $600,000 for 10% bonds with a par value of $600,000 on September 1. The bonds pay 5% interest semiannually on September 1 and March 1. The company intends to hold the bonds until they mature. Prepare the journal entries for the following dates and transactions related to this bond acquisition.
2. Bonds purchased on September 1.
3. Year-end adjusting entry, December 31.
4. Receipt of semiannual interest March 1.
5. Redemption of the bonds at maturity on August 31.

Learning Objective: 15-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On May 1 of the current year, a company paid $200,000 to purchase 7%, 10-year bonds with a par value of $200,000; interest is paid semiannually on May 1 and November 1. The company intends to hold the bonds until they mature. Prepare the journal entries to record (1) the bond purchase, (2) the receipt of the first semiannual interest payment on November 1 of the current year, (3) the accrual of interest for year-end December 31, and (4) the receipt of the second semiannual payment on May 1.

Learning Objective: 15-C1 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

SHORT ANSWER QUESTIONS

1. A company reported net sales of $850,000, net income of $200,000 and average total assets of

$575,000. Calculate its return on total assets.

Learning Objective: 15-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

ESSAY QUESTIONS

1. A company had net income of $350,000 in Year 1 and $520,000 in Year 2. The company had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2. Calculate the return on total assets for Year 1 and Year 2. Comment on the results, did the company's performance improve?

Learning Objective: 15-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

1. A company had net income of $45,000, net sales of $390,000, and average total assets of $450,000 for the current year. Calculate the company's profit margin, total asset turnover, and return on total assets.

Learning Objective: 15-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

1. A company reported net income of $225,000, net sales of $2,500,000, and average total assets of

$2,100,000 for the current year. Calculate this company's profit margin, total asset turnover, and return on total assets.

Learning Objective: 15-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

1. A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2. The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company's profit margin, total asset turnover and return on total assets for Year 1 and Year 2. Comment on the results.

Learning Objective: 15-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

1. A company had net income of $86,000 in Year 1 and $118,000 in Year 2. Its net sales were

$640,000 in Year 1 and $611,000 in Year 2. Its average total assets in Year 1 were $1,670,000 and

$1,712,000 in Year 2. Calculate the profit margin, total asset turnover and return on total assets for both years. Comment on the results.

Learning Objective: 15-A1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

95

1. Hubbard Company had the following trading securities in its portfolio at December 31. The Fair Value Adjustment–Trading account had a balance of zero prior to year-end adjustment. Prepare the appropriate adjusting journal entry.

Short-Term Investments Cost

Fair Value

XBM $ 24,500 $ 25,900

Micro 51,000 48,600

Outel 62,300 61,000

Dull 29,900 30,200

Totals $167,700 $165,700

Learning Objective: 15-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Element Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed. The year-end cost and fair values for its portfolio follow. Beginning with Year 1, prepare the appropriate journal entry to record each year-end market adjustment for these securities.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Scotsland Company had the following transactions relating to investments in trading securities during the year. Prepare the required general journal entries for these transactions.

May 4 Scotsland purchased 600 shares of Lobe Company stock at $120 per share plus a

$750 brokerage fee.

July 1 Scotsland received a $2.50 per share cash dividend on the Lobe Company stock.

Sept. 15 Sold 300 shares of Lobe Company stock for $125 per share, less a $450 brokerage fee.

Dec. 31 The fair value of the Lobe Company stock (the only investment that Scotsland owns) is $124 per share. The balance of the Fair value Adjustment–Trading account had a zero balance prior to adjustment.

Learning Objective: 15-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Mire Corporation had the following transactions involving investments in trading securities during the year. Prior to these transactions, Mire had never had any investments in trading securities. Prepare the required general journal entries to record these transactions.

Feb. 16 Purchased 800 shares of HM Corporation stock at $28 per share plus a $400 brokerage fee.

Feb. 26 Purchased 500 shares of Sugarland Co. stock at $19 per share plus a $300 brokerage fee.

Mar. 2 Received a $0.95 per share dividend from the HM Corporation.

Mar. 28 Sold 200 shares of HM Corporation stock for $31 per share less a $150 brokerage fee.

Apr. 20 Sold 150 shares of Sugarland Co. stock at $17 per share less a $100 brokerage fee.

Apr. 30 The company is preparing quarterly financial statements; prepare an adjusting entry for the fair value adjustment on the trading securities. At April 30, the HM stock has a fair value of $30 per share, and the Sugarland stock has a fair value of

$16 per share.

Learning Objective: 15-P1

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On October 31, Augustas Co. received cash dividends of $0.15 per share from its investment in Lamb Corp.'s common stock. Augustas owned 1,200 shares of Lamb Corp.'s stock on October 31. The investment is considered available-for-sale. Prepare the investor's journal entry to record the receipt of the cash dividends.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Landers, Inc., held 1,500 of Shipman Company common stock with a cost of $36,900. These shares were classified as a long-term available-for-sale investment. It sold the shares on December 13 for $42,100. Prepare Lander's journal entry to record this sale.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Washington Corp. held 1,500 of Vashon Company common stock with a cost of $74,387. These shares were classified as a Long-Term available-for-sale investment. It sold the shares on December 13 for $55,275. Prepare the journal entry to record Washington's sale.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. In the current year, Logic Co. purchased bonds of Waterford Co. with a cost of $125,000 and a year-end fair value of $123,700. Logic also purchased 1,500 shares of Jasper Co. common stock with a cost of $25,000 and a year-end fair value of $26,100. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of its December 31 year-end.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. In the current year, Largo Co. purchased bonds of MacDermott Corp. with a cost of $125,000 and a market value of $127,000. Largo also purchased 1,500 shares of Armistead common stock with a cost of $25,000 and a market value of $24,700. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of December 31.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

101

1. Barzetti had no investments prior to the current year. It had the following transactions involving available-for-sale and held-to-maturity securities during the year. The stock purchases are considered short-term available-for-sale securities. Prepare Barzetti's journal entries to record the transactions and events associated with the investment purchases.

Apr. 18 Purchased 5,000 shares of Lacy Co. stock at $26.50 per share plus a $350 brokerage fee.

May 01 Purchased $200,000 of Butcher's 7%, two-year bonds payable at par value. Interest payments are paid semiannually on November 1 and May 1. It is the company's intent to hold the bonds until maturity.

Jun. 10 Purchased 4,000 shares of SubCo stock at $48.25 plus a $325 brokerage fee.

Nov. 01 Received a check for the first semiannual interest payment on the Butcher's bonds.

Nov. 15 Received a $0.65 per share cash dividend on the Lacy Co. shares. Nov. 30 Sold 2,000 shares of Lacy Co. stock at $29 less a $300 brokerage fee. Dec. 15 Received a $1.10 per share cash dividend on the SubCo shares.

Dec. 20 Received a $.075 per share cash dividend on the remaining Lacy Co. shares.

Dec. 31 Prepare an adjusting entry to record the fair value adjustment on the

available-for-sale securities. At December 31, the Lacy Co. stock has a fair value of $28 per share, and the SubCo stock has a fair value of $49.50 per share.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Weston Company had the following long-term available-for-sale securities in its portfolio at December 31, Year 1. Weston had several long-term investment transactions during the next year. After analyzing the effects of each transaction, (1) determine the amount Weston should report on its December 31, Year 1 balance sheet for its long-term investments in available-for-sale securities,

(2) determine the amount Weston should report on its December 31, Year 2 balance sheet for its long-term investments in available-for-sale securities, (3) prepare the necessary adjusting entry to record the fair value adjustment at December 31, Year 2.

103

Nov. 01 Purchased 12,000 shares of Cliff common stock for $223,500 plus a brokerage fee of $450. The shares represent a 10% ownership.

Dec. 31 At December 31, Year 2, the fair values of its investments are: Beach, $502,500; Danfield, $411,800; Cardinal, $203,100; Apex, $1,113,250; Desert Springs,

$1,576,000; Cliff, $224,750.

Learning Objective: 15-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On January 2, Froxel Company purchased 10,000 shares of Sandia Corp. common stock at $19 per share plus a $3,000 commission. This represents 30% of Sandia Corp.'s outstanding stock. On August 6, Sandia Corp. declared and paid cash dividends of $1.75 per share, and on December 31 it reported net income of $150,000. Prepare the necessary entries for Froxel to account for these transactions and events.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Cosmos Corporation had the following long-term investment transactions.

Jan 2 Purchased 5,000 shares of Visual, Inc. for $42 per share plus $7,000 in fees and commission. These shares represent a 35% ownership of Visual.

Oct 15 Received Visual, Inc. cash dividend of $2 per share. Dec 31 Visual reported a net loss of $66,000 for the year.

Prepare the journal entries Cosmos Corporation should record for these transactions and events.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for $40 per share plus

$700 in broker commissions. These shares represent a 40% ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should record for the investment transaction.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for $40 per share plus

$700 in broker commissions. These shares represent a 40% ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should record for the receipt of cash dividends of $2 per share from Morton on July 10.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for $40 per share plus

$700 in broker commissions. These shares represent a 40% ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should record when Morton reports net income of $52,000 for the year on December 31.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

107

1. Draft Co. purchased 14,000 shares of Hamburg Corporation's 40,000 shares of common stock on January 1. This represented 35% of Hamburg's outstanding shares and gave Draft Co. significant influence over Hamburg's management and operations. On October 11, Hamburg declared and paid cash dividends of $30,000. On December 31, Hamburg reported net income of $125,000 for the year. Prepare the journal entries Draft Co. should record to account for the dividends received and the earnings reported by Hamburg Corporation.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. On January 1, 2014, Rickson Corporation purchased 7,500 shares of AutoTech as a long-term investment for a total of $235,000. The 7,500 shares represent 30% of the outstanding (25,000) shares of AutoTech. Prepare the journal entries for Rickson to record the following transactions and events:

December 31, 2014: AutoTech reported net income of $66,000 for 2014.

February 1, 2015: Sold 1,875 of the AutoTech shares for $34 per share. In addition,

$1,350 in fees and commissions were paid by Rickson on this sale. November 1, 2015: Rickson received a $0.90 per share cash dividend from AutoTech. December 31, 2015: AutoTech reported net loss of $46,000 for 2015.

Learning Objective: 15-P4

Bloom's: Apply AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Rainier Importers purchases automotive parts from Austria. Prepare journal entries for the following transactions of Rainier.

Oct 1 Purchased inventory from Klossner Co. for 12,000 euros, terms n/30. The exchange rate was $1.15 per euro.

Oct 30 Paid Klossner Co. for the October 1 purchase. The exchange rate was $1.13 per euro.

Learning Objective: 15-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB: Global; FN: Measurement

1. Silver Era Co. exports Southwestern artwork to Japan. Prepare journal entries for the following transactions.

Nov 10 Sold artwork to Ito Company for ¥10,000,000, terms n/30. The exchange rate was $0.009 per yen.

Dec 5 Received payment from Ito Company for the November 10 sale. The exchange rate was $0.0087 per yen.

Learning Objective: 15-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB: Global; FN: Measurement

1. Arkansana Inc. imports inventory from Costa Rica. Prepare the journal entries for Arkansana to record the following transactions. Include any year-end adjustments.

Dec 21 Purchased inventory from Rojas Co. for 5,000,000 Costa Rican colon. The exchange rate was $0.002 per colon. The credit terms were n/30.

Dec 31 The exchange rate was $0.0023 per colon.

Jan 20 Paid Rojas Co. for the December 21 purchase. The exchange rate was $0.0021 per colon.

Learning Objective: 15-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB: Global; FN: Measurement

1. FreshFoods, Inc. sells American gourmet foods to merchandisers in Singapore. Prepare the journal entries for FreshFoods, to record the following transactions. Include any year-end adjustments.

Dec 20 Sold items to Tan, Inc., for 60,000 Singapore dollars. The exchange rate was

$0.476 per Singapore dollar. The purchase terms were n/30.

Dec 31 The exchange rate was $0.480 per Singapore dollar.

Jan 17 Received payment from Tan for the December 20 sale. The exchange rate was

$0.495 per Singapore dollar.

Learning Objective: 15-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB: Global; FN: Measurement

SHORT ANSWER QUESTIONS

1. ________ are investments in securities that management intends to convert to cash within the longer of one year or the operating cycle, and are readily convertible to cash.

Learning Objective: 15-C1 Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. ________ are investments in securities that are not readily convertible to cash, or are not intended to be converted to cash in the short-term.

Learning Objective: 15-C1 Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. securities reflect a creditor relationship while securities reflect an owner relationship.

Learning Objective: 15-C1 Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. An investing company that owns more than ________ of another (investee) company's voting stock is presumed to have controlling influence over the investee.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

Short-term investments in held-to-maturity debt securities are accounted for using the ________.

Learning Objective: 15-P2 Bloom's: Remember

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

Long-term investments in held-to-maturity debt securities are accounted for using the ________.

Learning Objective: 15-P2 Bloom's: Remember

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Investments in equity securities where the investor has a significant, but not controlling influence, are accounted for using the ________ method.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Investments in equity securities where the investor has a controlling influence are accounted for using the ________.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. ________ refers to all changes in equity for a period except for those due to investments by and distributions to owners.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

Foreign exchange rates fluctuate due to changing ________ and ________ conditions.

Learning Objective: 15-C3

Bloom's: Remember AACSB: Analytic

AICPA: BB: Global; FN: Measurement

Return on total assets is computed by dividing ________ by ________.

Learning Objective: 15-A1

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Risk Analysis

1. ________ are debt and equity securities that a company intends to actively manage and trade for a profit.

Learning Objective: 15-P1

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Investments in trading securities are always classified as ________ and are reported as ________ on the balance sheet.

Learning Objective: 15-P1

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Reporting

________ are debt securities a company intends and is able to hold until the maturity date.

Learning Objective: 15-P2 Bloom's: Remember

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. Long-term investments in available-for-sale securities are reported at their ________ on the balance sheet.

Learning Objective: 15-P3 Bloom's: Remember

AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. An investing company that owns ________ of another (investee) company's voting stock (but not more than 50%) is presumed to have a significant influence over the investee.

Learning Objective: 15-P4

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. If a U.S. company makes a credit sale to a foreign company, the sales price must be translated into dollars as of the date of .

Learning Objective: 15-C3

Bloom's: Remember AACSB: Analytic

AICPA: BB: Global; FN: Measurement

A company that is a controlling investor in another company is known as the ________.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. When one company owns more than 50% of another company's voting stock and has control over the investee company, the investee is called the ________.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement

1. ________ financial statements show the financial position, results of operations, and cash flows of all entities under the parent company's control, including all subsidiaries.

Learning Objective: 15-C2

Bloom's: Remember AACSB: Analytic

AICPA: BB: Industry; FN: Measurement